Equities Weekly: A Headstart In The Fourth Quarter! [6 October 2017] October 10, 2017
Equities Weekly: A Headstart In The Fourth Quarter! [6 October 2017]
Author : iFAST Research Team

Equities Weekly: A Headstart In The Fourth Quarter! [6 October 2017]

Global equity markets entered the fourth quarter rather strongly, with the MSCI AC World Index climbing 1.18% over the week ended 6 October 2017. America's S&P 500 Index made new highs as it rose 1.55%, closing at 2,549 points, while Europe's Stoxx 600 Index also inched higher (by 0.02%) over the week. Japan was the top performing developed market this time round, as the country's Nikkei 225 Index climbed 1.92%.

We saw stronger performances over in the emerging markets as a whole, with the benchmark MSCI Emerging Markets and MSCI Asia Ex Japan Indexes recording gains of 2.34% and 2.65% respectively. The Chinese equity markets saw strong gains, with the offshore market (represented by the HSML100 Index) rallying 5.31% over the week, and Hong Kong's Hang Seng Index rallying 3.72%. While South Korea was flat over the week, Taiwan's equity market rose 2.20% over the week. In Southeast Asia, Malaysia, Indonesia and Thailand are all also in the black, with the top performer being the Lion City, as the STI recorded a 1.95% rally over the week.

In other emerging markets, the Brazilian and Russian equity markets saw gains of 2.84% and 0.14% respectively, while Indian equities also saw a rebound from the previous week, posting a 1.85% gain over the week. Crude oil prices, as gauged by the West Texas Intermediate (WTI) grade, fell -4.27% in MYR terms over the week, dipping below USD 50 per barrel (to USD 49.29).

Economic Calendar:

August's JOLTS report for the US is scheduled to be released, whereby investors will be scrutinising it for an indication of the health of the US labour market. August's industrial production data for the UK, France and Germany are also scheduled for release among the Eurozone economies. In Asia, Japan's core machine orders for August is also in the pipeline, while China is set to release September's monetary aggregate supply data this week. Closer to home, investors can expect Singapore's August retail sales numbers to also be released.

[All returns in MYR terms unless otherwise stated]

Investors may refer to Market Valuation As Of 6 October 2017 for more details.

US: September's ISM Manufacturing Highest Since May 2004, September's NFP At -33,000

September's reading of the Institute for Supply Management (ISM) Manufacturing PMI came in at 60.8, up from a prior 58.8 and beating consensus estimates of a 58.1 reading, and is the highest headline reading recorded since May 2004. A breakdown of the data's various components revealed that new orders, supplier deliveries (exacerbated by the aftermath of Hurricane Harvey), backlogs and new export orders all rose in September. Additionally, the employment gauged rose to 60.3 (from 59.9), the highest level since June 2011. While the recent readings have been boosted partially by the effects of the recent hurricanes in the south, manufacturing momentum in the US is robust due to improving global demand and accelerating momentum in emerging markets.

The US economy saw job losses of -33,000 in the month of September, down from a prior upward-revised 169,000 and coming in lower than the consensus estimate of an 80,000 print. Private payrolls fell -40,000, down from a prior downward-revised 164,000 (manufacturing payrolls decreased by -1,000, down from a prior upward-revised 41,000). The food and beverage industry saw a big decrease in payrolls, which is likely due to the fallout of adverse weather conditions. Consequently, the unemployment rate came in at 4.2%, below the expected 4.4%. On the other hand, wages rose 0.5% month-on-month, higher than expected (0.3%), and rising from a prior 0.2% month-on-month rate. While the latest data may have been skewed by the disruptions caused by the recent hurricanes in the south, we opine that the data may stay volatile for a while as the adverse weather effects diminish, and that the US labour market remains healthy as other data points suggest that it is robust.

South Korea: September's Exports At All-Time High

At the western end of the Pacific in East Asia, South Korea's exports grew 35.0% year-on-year in the month of September, rising strongly from a prior 17.4% year-on-year rise and smashing consensus expectations of a 25.0% year-on-year increase. In nominal terms, September's exports came in at USD 55.13 billion, which is the highest amount ever recorded since the data series began in 1956. September's data also rose the most since January 2011 and is the ninth consecutive month of double-digit year-on-year increases. Authorities say exports are mainly driven by a sharp rise in demand for steel and electronic components, especially semiconductors and displays. On a country basis, exports to China and the US increased by 23.4% year-on-year and by 28.9% year-on-year. Benefitting from the introduction of new models of smartphones, the demand for electronic components continued to increase, lending support to South Korea's exports growth.

India: September Manufacturing PMI Remains In Expansionary Territory

India's manufacturing sector recorded a second consecutive month of expansion with the Nikkei Manufacturing PMI coming in at 51.2. The sustained expansion was supported by increase in output as well as new orders. In order to meet the rising output demand, manufacturers increased staffing level at the fastest pace since October 2012. Output growth in consumer and intermediate goods offset a contraction in investment goods. New orders increased for the second consecutive month, supported by rising domestic demand, while new export orders declined ending a three month period of expansion. Output charges increased marginally as firms raised selling prices amid inflationary pressures to protect margins. Post production inventories declined at the fastest pace since the inception of the Manufacturing PMI survey, indicating a recovery in demand after a contraction in the month of July. Business confidence strengthened among manufacturers as they anticipate long term benefits of recent government reforms. Despite a possible impact of recent government policies, growth momentum in India remains supported.

Brazil: August's Industrial Production Misses Expectations

Over in South America, Brazil's industrial production rose 4.0% year-on-year in the month of August, up from prior month's upward-revised 2.9% but missed expectations of a 4.8% growth. On a seasonally-adjusted month-on-month basis, industrial production fell -0.8%, breaking its trend of positive growth for four consecutive months. With the exception of durable goods, growth in the production of all 4 other types of goods had fallen month-on-month. Nonetheless, August's industrial production has extended its uptrend on a year-on-year basis, with expansion seen for the fourth consecutive month. While ongoing political events present a risk to investment appetites, it remains likely for industrial production growth to be positive for the whole of 2017 (expected 1.05% as of 29 September 2017 according to a weekly central bank survey) and to accelerate in 2018 (expected 2.40% growth for the whole of 2018 as of 29 September 2017 according to the same weekly central bank survey).

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